Developers often want to “lock-in” the value of the amenity and design of a new development, such as in a commercial precinct or new suburb. Similarly, residents of a street or suburb often wish they had some way of controlling what their neighbours do on surrounding blocks of land.
What if there was a way to define your own rules, for your own development, or your own street? Could your rules override what the local planning body wanted to do in the future? Maybe you can, by way of covenants to controland restrict what adjoining landowners can do with their land.
The issue is back in the news, with recent media reports suggesting that the chief executive of the Sussan Group cannot redevelop her $12 million residential property in Melbourne the way she wants to, because of a covenant imposed in 1890 limiting the roof of any structure built on the land to“slates or tiles”.
What's a restrictive covenant?
A restrictive covenant “restricts” the use of land with the intention that the value and enjoyment of adjoining land is preserved. Typically, restrictive covenants are private agreements between private owners. Covenants can either impose a positive obligation on a person to do a particular thing (a positive covenant) or to refrain from doing a particular thing (a negative covenant). A developer that is subdividing a large area might want to ensure that only single houses are built, rather than multi-unit developments. Restrictive covenants usually emerge from land subdivisions where one person has control over the first sale of all of the individual blocks in the area, and can therefore impose restrictions or requirements that buyers sign on to as part of their purchase of their block.
Restrictive covenants restricting or prohibiting a range of things have been upheld in the courts, including:
- prohibitions on the construction of more than one house;
- restrictions or prohibitions on the construction of a structure above a certain height;
- prohibitions not to conduct a particular business or trade; and
- restrictions or prohibitions that prevent the landowner from clearing the land.
Under modern Torrens title land registration systems, restrictive covenants can be registered against land and will “run with the land”. This means they are enforceable by and against successors in title.
“Touching and concerning” the land
But can anything be the subject of a restrictive covenant?
Well, no. A restrictive covenant must “touch and concern the land”. The covenant must be imposed for the benefit of or to enhance the value of the land retained by the person with the benefit of the covenant. The most fundamental test of this “touch and concern” requirement is to establish that there is both a dominant and a servient tenement, meaning that there is one property that has the benefit of the covenant and one that has the burden of it. If this requirement is not fulfilled, the covenant does not “touch and concern” the land and will not be enforceable against its successors. The land need not necessarily “touch” the other land, but there must be some “real sense of proximity” to satisfy the requirements of the test.(1) Covenants must affect the “nature, quality, and mode of user or value” of the dominant tenement and must not be expressed as being personal.(2)
Registering restrictive covenants in the ACT
Restrictive covenants can be applied when a developer first develops and subdivides land, in an effort to restrict the use of the land after it is sold. This is to ensure that the developer’s opinion of “value” is maintained in the subdivision in the future. Restrictions range from what can be constructed and where, duties to repair, duties to contribute toward maintenance, materials required to be used in construction, and what the property can be used for.
There are no express statutory provisions in the ACT which deal with the registration of restrictive covenants, or their regulation or enforcement. However the Registrar-General will register a transfer which has attached to it a schedule containing restrictive covenants. According to the Manual, but contrary to some legal pronouncements, covenants requiring a land owner to “do something” are not permitted.
A restrictive covenant can be released by way of an application to the Registar-General by those persons authorised to release the covenant, namely all of the other landowners that have the benefit of it. The Manual notes that restrictive covenants will fall upon registration of a surrender and re-grant of a Crown lease upon which such a covenant is registered, and will not be carried forth upon registration of a Units Plan.
The potentiality of restrictive covenants...
A restrictive covenant is a unique form of restriction imposed on the owner of a property. It is different to an easement in that an easement is a right enjoyed by one person over land belonging to another person. It is different to a caveat in that a caveat is a notice/caution recorded on the title to the property that a person has an interest in the land, which can prohibit dealings being registered on the land. If a restrictive covenant is breached or if a breach is attempted, a person benefitted by the covenant has the right to enforce the restriction in court by commencing legal action.
Property development anywhere in Australia is heavily regulated by planning, building and subdivision legislation. In Canberra, strong control is exerted through land use policies and building regulation. How effective is this legislation (and the authorities that enforce it) in the face of covenants which restrict what adjoining landowners can do? Can the goals of the ACT Planning and Land Authority (“ACTPLA”) be stymied if a developer or a community employs a web of restrictive covenants?
Clearly, a developer or a well-organized community could effectively create their very own “planning zone” to control the use of land through restrictive covenants. In this way privately-enforced “planning policies” could prevent the roll-out of ACTPLA policies.
Can the authorities object to restrictive covenants?
Unlike some other jurisdictions, there are no legislative rules which provide that the public planning policies administered by ACTPLA take precedence over the planning agreements and covenants entered into between private citizens. Legislation in New South Wales(3) and Victoria,(4) for example, allows planning authorities to override private covenants for the purpose of public planning. This is in addition to the general power that NSW and Victorian courts have to modify covenants.
Indeed, NSW courts can even extinguish covenants. For the purposes of enabling development to be carried out in accordance with a public planning instrument issued in NSW, that instrument may limit or exclude the operation of a covenant to the extent necessary. A good example of this was a NSW Court of Appeal case that considered the enforceability between private landowners of a covenant restricting the construction of more than one dwelling on the lot or subdividing the lot.(5) The covenant was struck down by the Court because the Council’s Local Environment Plan contained provisions prohibiting private restrictions which might fetter or restrain what the Council would otherwise approve as a “lawful development”.
In contrast, ACT courts could not strike down an otherwise valid covenant for reasons of any conflict with planning or building policies. There is no direct power, although it occurs to us that arguments could be presented to a Court to the effect that the establishment or registration of restrictive covenants in the ACT was not permitted, for reasons such as the fact that ACT land is leasehold, or because local legislation does not expressly provide for registration of restrictive covenants.
Value creation and nimby power... but there are risks
“Gated” communities and private reservations are trends in residential development that have not yet found their way to the ACT. However, developers in the ACT may start to think about the way that value can be “locked-in” to new development by private regulation of future land use. Equally, like-minded residents who wish to preserve the character of their street or neighbourhood may be able to place restrictions on each other that will thereafter travel with the title to their respective properties and protect them from unwanted development applications in the future.
Whether the ACT authorities would devise a legislative response to these mechanisms, and if so what that response would look like, cannot be foretold. Nonetheless – subject to political opposition – the presence of overriding laws in other jurisdictions would likely be a tempting precedent for the local legislature.
Until then, creating and enforcing restrictive covenants can be an affordable and convenient way to preserve the character of a neighbourhood as envisaged by developers or as enjoyed by the community itself.
For more information, please contact Daniel Moulis on +61 2 6163 1000 or firstname.lastname@example.org.
(1) Tulk v Moxhay (1848) 41 ER 1143.
(2) P & A Swift Investments v.Combined English Stores Group Plc  AC 632.
(3) Environment and Planning Assessment Act 1979, Section 28.
(4) Planning and Environment Act 1987, Section 96I and Subdivision Act 1988, Section 23.
(5) Lennard v Jessica Estates Pty Ltd (2008) 71 NSWLR 306.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2014